High risk payment processing

Even though all businesses are equal in the right to accept debit/credit card payments from their customers, it may be difficult for some companies to set up payment processing. Why do some businesses face more limitations and restrictions than others? The answer is quite simple. The higher the level of risk in your industry, the less willing payment companies will be to cooperate with you.

In banking terminology, a high-risk business is a business with a high level of chargebacks — cancelled payments and refunds. Since banks and payment service providers take on all the risks associated with processing transactions, not all want to work with high-risk companies. Thus, if your company falls into this category, you'll seek a payment service provider willing to handle high-risk payment processing.

Setting up high-risk payment processing is typically associated with a more thorough check of your e-commerce business before obtaining a merchant account, as well as higher service fees. It is because the entity responsible for processing your transactions does not want to bear reputational risks and losses. However, running a high-risk business does not mean that you won't be able to accept and process credit card payments from your customers. Many third-party payment service providers and processors will gladly help you with this. Before you get worried, let's determine what kind of business is considered high-risk.

When determining a low-risk or high-risk business, banks and other financial institutions are guided primarily by two factors — your industry and how you're doing business. The first point concerns merchants selling high-risk products such as weapons, pharmaceuticals, CBD vapes, etc. The second aspect includes many specific factors: credit history, overall profitability, annual processing volume, billing model, level of chargebacks, currency, location, and total time in the market. For example, suppose you're a startup with minimal credit card processing history. In that case, predicting how your business will develop and operate can be difficult, which is also a good reason for refusal.

Some factors may seem subjective, but they are all crucial for companies planning to cooperate with merchants. For example, a business with a poor credit history and many chargebacks can't be considered trustworthy. A partnership with such a company may damage the reputation of a PSP. Plus, there are countries with a high chargeback risk (almost every country except the USA, European Union, Canada, Japan, Australia, and South Corea). So, even if your company is in a low-risk industry but you have more than 1% chargebacks, banks and third-party companies may classify you as a high-risk merchant due to potentially significant losses.

Each processor has its own terms of cooperation and preferences in industries they're ready to work with. But fraud and chargebacks aren't welcome anywhere. That's why setting up high-risk payment processing usually takes more time and effort than a traditional one.

In today's world, accepting card payments is a must for any e-commerce business, and merchant accounts make it possible. But opening it is problematic if your business falls into a high-risk category. Most banks and financial institutions don't want to be involved in problems such as fraud, chargebacks, or losses. Even if your business performance is satisfactory, some PSPs may categorise your company and the products you retail as a high-risk industry and refuse to provide processing services. But don't be discouraged if you haven't received approval from a processor. You probably just need a high-risk merchant account.

The main difference between a traditional and a high-risk merchant account is that the latter has higher fees and processing limits. It can be explained by the fact that a payment service provider wants to cover possible financial losses from high-risk companies rather than attracting attention with suspiciously large volumes of transactions processed. However, slightly inflated fees are often justified because, besides having a merchant account, you can also benefit from a wide range of functions and services that will become excellent assistants in doing business. Among them are dedicated customer support, fraud monitoring, etc.

As we can see, opening a high-risk merchant account is a tough row to hoe, but with it, businesses can accept funds from their customers. To sell products under your brand worldwide and accept online or credit card payments, every company needs a trading account (MID) and a gateway — a processing technology designed for online transactions. The most convenient way to get them is to cooperate with a third-party company offering processing services even for 'risky' industries.

It is an indisputable fact that there are no businesses that can guarantee stable and profitable activities permanently. But still, there's a large number of companies that are ready to provide all types of businesses with MID, gateway, and other necessary tools for trouble-free accepting and processing transactions. The road to successful sales is open when your high-risk merchant account application is approved. All you need to do is carefully choose the solution that suits you best.